Greenway Offers a Healthy Solution

Getting sick and going to the hospital is bad enough. But just wait until the nurse loses your medical records, or a specialist can't read the writing of another specialist, or one hospital's software doesn't connect with your hospital's software system. It will make you want to throw up, if you haven't already.

This is why the broad initiative among medical professionals to adopt electronic health records, or EHRs, is a crucial step for patient safety, cost savings and system efficiency.

You would think this is a no-brainer that would be accepted by the health care industry faster than a TV doctor can say, "Stat!," but you would be wrong. The pace of adoption has been slow and agonizing -- a development that has actually worked out in favor of some small companies with big ideas.

The EHR essentially allows the smooth coding, transfer, storage, and sharing of patient medical records. The goal is eventually to have a universal medical record that can be easily accessed by patients, doctors, insurance companies, hospitals, and emergency service providers all at the click of a mouse button, or flick of a finger on an iPad.

Several medium-sized tech companies, like $12 billion powerhouse Cerner (CERN), have made tons of money for investors working on these issues. But some smaller newcomers have emerged to weave together networking expertise with medical savvy in this niche.

My top pick is Greenway Medical Technologies (GWAY), an integrated information technology firm that provides web-based software solutions to the health care sector. Although it just launched as a public company in February, it's been in business for more than a decade, with 600 employees, 41,000 customers, and $30 million in revenues. It sports a $435 million market cap, which means that it would have to grow 27x to get to Cerner's size.

EHRs aren't entirely new, but the non-interoperability of a hundreds of disparate approaches has become a thorny issue in the industry. There is no single technology platform, so the EHR system your doctor uses may vary greatly from the one your local emergency room uses, and there's a good chance they don't communicate with each other.

Not only that, but even EHR platforms within the same office may not communicate well, as a typical physician's office may use a different system to control billing, patient medical records, and clinical research. An analyst with J.P. Morgan who follows the segment recently pointed out that the physician EHR market is highly fragmented with hundreds of vendors, many of which only emerged a few years ago.

The largest vendor, Allscripts (MDRX), at a $2.9 billion market cap, only controls 14% of the market. Greenway has 3% and it's climbing.

For comparison, imagine that instead of being installed in 90% of personal computers, Microsoft Windows was the market leader of operating systems with only a 14% share -- trailed by hundreds of independent providers with incompatible unique systems. That would make sharing information among co-workers, friends and professionals cumbersome and inefficient. Yet that is where the EHR market stands today.

While there's a growing effort to consolidate the industry as a whole, Greenway has found an excellent niche providing integrated and interoperable solutions for physician practices, ambulatory clinics, hospitals and health-information exchanges.

Its flagship product is its PrimeSuite software platform, which has received 13 best in class awards since 2004. It is a single integrated database with electronic health records, practice management, and interoperability functionality. Components include accounts receivables, patient registration, scheduling, and reporting.

In addition to the core PrimeSuite platform, there are several add-on solutions depending on customer need that range from business analytics, imaging solutions, patient web portals, clinical-trial-research solutions and more.

The company markets through a direct sales force of about 70 reps that generate 75% of total sales, with a handful of resellers accounting for the remainder.

The company was created by dozens of physicians and hospital executives who recognized the need for a solution to rising costs and inefficiencies. These initial stakeholders, led by founder Tommy Green, started the company to build the EHR solution that they thought would be at the heart of a major transformation in the industry.

Green's son, Wyche "Tee" Green, is the current chief executive, taking over in 2010 after joining the firm in its infancy stage a decade earlier. In fact, the majority of the executives have been with the company since the beginning, while current and former physicians lead the design and development of its core products.

A big tailwind for the EHR industry has been the American Recovery and Reinvestment Act of 2009, also known as the Stimulus Bill, which provides incentives to providers that adopt some form of the technology. Analysts say the bill is providing an additional 5% growth, with an estimated $800 million paid out so far of the $26 billion in total earmarked for health-information-technology investments. Additionally a recent report by the Center for Disease Control indicates that basic EHRs have a 33.8% adoption rate, which points to at least a $3.5 billion market opportunity over the next five years alone.

Greenway's business is broken into four major revenue segments, with the system sales and training areas representing just over half of revenue. These non-recurring sales are generated primarily on the front end, as Greenway installs a new software solution and then offers training. The other half of revenue is generated by subscription and maintenance fees.

The firm grew revenue by 39% and gross profit by 34% last year, with the latest quarterly data showing no signs of slowdown. In fact, with such a large percentage of recurring revenues, analysts forecast 50% earnings growth over the next couple of years.

Shares are trading at 44x next year's earnings. That might appear expensive, but when you factor in an explosive growth rate, a technology platform that clients consistently vote the best in the industry, and a strong focus by the health care industry to trim labor costs, ideal conditions appear to be brewing for Greenway over the next several years.

After going public at $10 in February, shares shot to the $13.50-$16.25 area, where they have range-traded for three months. You don't run into little-known tech revolution leaders like this very often. I consider it a buy at $17 or less. If shares break out with a close over $16.25, in a decent bullish cycle they could actually gain further altitude quite rapidly.